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The Body Shop

The Ideal Money Pension Guide


Arranging a pension might be something that many of us put off, especially when we are young and retirement seems such a very long way off.

But perhaps the single most important key to understanding pensions is that the earlier you start, the more successful you are likely to be in building a comfortable financial future for yourself.

Whatever age you start, both you, any employer, and in certain cases the government, typically make contributions into a fund for use whenever you retire.From 6 April 2015, people aged 55 plus can also enjoy pension freedoms, which enables them to access their pension pot in one go, rather than having to buy an annuity.

Who may this product be suitable for?

Since a pension provides a dependably regular source of income once you have passed retirement age, a pension of one sort or another is suitable for everyone. By the same token, anyone is able to arrange a pension whether:

  • they are employed by someone else;

  • they are self-employed; or

  • they are in receipt of any kind of income from which contributions may be made into a pension scheme.

What does a pension typically involve?

Although there is a common end result in that a pension provides you with a regular source of unearned income once you are in your retirement, there are nevertheless three basic types of pension – and the title of each is quite straight forward:

The State pension

  • the pension scheme provided by the government is funded by the National Insurance contributions you have been paying during the course of your working life (including those times when the government may have paid the contribution when you were not working)

  • in order to qualify for the maximum weekly State pension you need to have made the minimum of a given number of years of contributions;

  • you might have formed the view that understanding the ins and outs of the State pension scheme was easy and straight forward – the sheer range of different topics and the number of webpages that appear on the government website, suggest that this may not be the case;

  • to see how much you could receive for your State pension, use on of the Government online pension calculators;

The Workplace pension

  • just as the term suggests, these are pension schemes organised and run by your employer;

  • a workplace pension may be especially valuable because your employer is also making contributions into the scheme on your behalf – effectively, a part of your remuneration benefits;

  • with effect from 2012, most companies have been obliged to offer all employees access to a company pension scheme – through a process known as auto-enrolment;

  • the National Employment Savings Trust (NEST) is also available for companies to set up a workplace scheme;

Private pensions

  • if you are self-employed and do not have access to a workplace scheme, you might instead choose to invest in a private pension;

  • these work by your making regular contributions to a pension provider who in turn uses those receipts to buy investments (such as company shares, for example);

  • as with any investment, of course, the value of investments may go down as well as up and this affects the value of your pension pot;

  • the value of your private pension is then determined by the amount you have paid into it, how the pension provider’s investments have performed, and whether you choose to withdraw your pension benefits in one large sum, as a series of smaller sums, or by way of regular payments.

Is there anything I need to know?

The maximum you can currently get is £115.95 per week under a State pension. Some people may find it a struggle to live comfortably on this amount and that is why it may make sense to make invest in a private pension scheme in order to secure your financial future.

There is a good deal to know about pensions and although there are many options that determine how much your pension is worth, the earlier the start, the better off you are likely to be. Striking the right balance on such questions might be a question best addressed by your personal financial adviser.

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